64
Legal Focus
OCTOBER 2013
Anti-trust and competition issues in
The recent provisional ruling by the Competition Commission that the multiplex operator Cineworld should sell several venues, partially reversing some of the company’s purchase of Picturehouse cinemas, highlights the competition challenges companies face in M&A. To find
out more, we speak to Paul Lasok QC from Monckton Chambers. administrative process and, on occasion, more than one law to apply to the deal. That brings in its train the risk of the different authorities ruling on a merger/acquisition coming to inconsistent decisions (see the recent decisions of the UK and French authorities on cross-Channel ferries). Sometimes there appears to be competition between authorities (which of them is going to get its decision out first; which is going to get the most publicity for the way in which it deals with the merger/acquisition). Authorities are often jealously independent of each other (not a bad thing in itself); but that can create the impression that, when decisions differ, it is because the authorities wish to demonstrate that each makes its own mind up and is not influenced unduly by the other.
What are the most common anti-trust and competition related challenges to arise within mergers and acquisitions in your experience?
Mergers and acquisitions are usually classified as being horizontal, vertical or conglomerate. The challenges vary depending upon the type in question; but the usual questions that need to be asked concern the market strength of the entity that will emerge from the merger/acquisition and the risk of it producing a substantial lessening of competition. However, each merger/acquisition reflects the dynamics of the particular market or markets in which the parties are active. The problems and solutions that arise in relation to one merger are not necessarily transposable to another merger in a different market. The main challenge in all mergers/acquisitions is to explain how the deal is likely to affect the future development of competition in the market or markets in question having regard to the way in which business is actually conducted in those markets. In order to do that, it is necessary to have a clear idea of how competition works in reality in the market in question and to be wary of assumptions that are commonly made about how business is done. Presenting a case for (or against) a merger/ acquisition can easily go wrong unless the relevant features of competition in the affected markets are properly investigated and explained. That may seem a meaningless platitude. But the point is that features of how business works in a particular market may appear so obvious to a person immersed in doing that kind of business as not to need mention, whereas they are far from obvious to an external observer (such as a competition authority deciding whether or not to clear a merger); and sometimes business people get so close to the business that they lose sight of details about how exactly competition works that are important to advisers (and decision-makers).
How do these challenges alter when a deal is cross-border?
Cross-border deals usually involve more than one relevant authority and, therefore, more than one
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What due diligence should companies carry out? There are really two entirely different considerations.
One is effective due diligence designed to find out whether or not the other party has been engaged, or is currently engaging, in anti-competitive conduct that exposes it to the imposition of a fine or to claims for damages. When there is a merger, the merged entity will inherit liabilities of that sort. The same can arise where A sells a business to B and the business in question (not necessarily A itself) has engaged in anti-competitive conduct. Unfortunately, even really serious due diligence cannot guarantee uncovering deeply hidden participation in a cartel. Where appropriate, effective vendor-purchaser covenants have to be put in place.
Due diligence relating to the merger control aspects of a merger/acquisition is rather different (and you may not be referring to that).
are there many cases of anti-trust and competition related litigation that arise with the M&a market?
I tend to see only the cases that result in litigation and find it difficult to judge what the proportion of litigious cases is. As a matter of impression, litigious cases (if by that you mean cases that get to a
court) form a very small percentage of the total M&A market; but that is not saying very much because many mergers and acquisitions are not problematical from the perspective of merger control.
administrative proceedings the
If you extend litigation to cover (before
Competition Commission in the UK and similar national authorities) the proportion is larger but still relatively small.
Have you noticed a rise in anti-trust and competition related cases as the world recovers from the financial downturn? Will this continue?
So far as M&A work is concerned, the financial downturn led originally to a drop in transactions but some observers are saying that 2013 will be the best year in the UK for about ten years or so. Merger control litigation tends to follow the general trend in M&A work, always bearing in mind that the litigation tends to arise in connexion with the more important and problematical deals. Therefore, if growth is felt at the lower end of the M&A market only, there may be no effect on the volume of litigation.
As to anti-trust cases generally, I do not think that the financial downturn had any negative effect at all on the level of activity. LM
contact:
Paul Lasok qc tel: 020 7405 7211 Fax: 020 7405 2084
www.monckton.com
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